International Money Transfer = Secret Code for More Money In Your Pocket

I’d often heard about international money transfers, or international currency exchange companies but always figured they were a complicated process and only worth dealing with if you were a large corporation.

After all, it’s common knowledge that if you need a different currency, you just go to a bank right? Before you take that spring break trip to Florida or family holiday to Mexico, you go to your friendly neighborhood cashier and ask to buy some American greenbacks or a fistful of pesos. Sure, you know the bank will take a small slice for their time and effort, but it’s what everybody does – so common sense dictates there isn’t option that’s much better. When you had that semester abroad and realized that pints of beer cost more than you thought, you got your parents to “wire money” and didn’t think much beyond the fact that you were now back in the game right? Turns out you could have stayed for an extra round if only you known about international currency conversion services.

I often convert currency without even thinking about. I might order something from the USA and put it on my credit card or perhaps I use my Paypal account to receive or give a payment. I vaguely remember reading about currency conversion fees, but didn’t take them all that seriously until I recently read that I was likely paying 2-2.5% more than I had to every time I changed money from one currency to another. That might not sound like much – but it can really add up! Obviously the more money that you are transferring the more true this is. For example, if you did a large freelance gig for an American company and were transferring $15,000 USD back into Canadian Dollars using an average Canadian bank, you would have just sacrificed roughly $375 because you didn’t see if there was a more efficient way available.

When I was recently talking to a friend about these services he mentioned that he had received a substantial (substantial to us small fries anyway) inheritance from his American grandfather who had passed away few years prior. He hadn’t ever heard about companies that would transfer money from one currency to another – he just figured that that was the Banks’ job. While he has left some of the money in a USD account (mitigating the loss of even more cash), he had paid a rate “somewhere around 3%” to convert his cash back to Canadian Dollars.

So How Much Can I Save?

There are a few different ways these foreign exchange companies can save you money:

1. Two percent right off the top when you exchange money. That’s the difference in the “spread” between what a Canadian bank will usually charge to exchange Canadian Dollars to US Dollars or vice versa – versus the pick of the litter I could find with a quick Google search. This rises to nearly a 3% difference when you use Paypal or if you are exchanging more “exotic” currencies.

2. Banks LOVE fees. As a guy who collects dividends from bank stocks, I have a love-hate relationship with fees. I love collecting them, hate paying them! Canadian banks will charge $20-$50 every time you transfer money abroad. Most currency exchange companies don’t charge any fees, but some do charge $10 for smaller currency transactions.

3. If your time = money, then you can chalk up another win for the currency exchangers vs the banks. Because large banks are set up to provide a smorgasbord of financial services it is often either not possible to transfer money via their website or through an app. International currency exchangers are built for one purpose: to make converting money cheaper and easier. Consequently their apps and websites are streamlined for maximum ease of use, and their customer service are experts in this one specific area (as opposed to the generalists you’ll find on the other end of a bank’s helpline). This online option is particularly easy to use if you’re transferring less than $20,000.

4. If you’re transferring money to a friend, you can do them a solid by using a money transfer service. Many banks will charge up to 1% of the transaction, plus other fees to the recipient of the wired money. If you do a few minutes of research, you can find a company that will eliminate nearly all of this charge.

Who Are These Guys and How is This Possible?

I was initially pretty skeptical about this whole thing and wondered what the catch was when it comes to these currency exchange companies. No one just does something out of the goodness of their heart right?

The basic premise is that – as in many other areas of personal finance – banks and credit card companies take severe advantage of our lack of education to get us to pay a lot more for a service than it is worth. The result is a nice juicy profit margin.

International monetary converters simply take a much smaller slice of the delicious pie you’re trying to send from Canada to the USA or Europe. As I previously mentioned, their entire business model is built around this one service, and many of the online conversion services have very little brick-and-mortar costs. They can then pass these cost savings on to customers such as yourself.

It is true that by trading a large amount of one currency for another, you can use these companies to negotiate an even better deal than those of us who might just be exchanging a few hundred or a couple thousand dollars. However, even with relatively small amounts of money, this discount from the bank’s rate is possible because international currency conversion companies will simply combine your “order” with those of others to make the necessary economies of scale work for everyone. By holding accounts in all countries, several middlemen can be lumped together, and maximum savings reached.

Is Signing Up For These Services a Time-Consuming PITA?

While registering with a foreign currency exchange company can be slightly more time consuming that walking into your local neighbourhood bank, the good news is that you don’t have to get out off of your couch to do it.

The basic process consists of:

1) Signing up through an app or online and entering in your basic details.

2) Requesting a currency quote from one or more (you can actually get these guys to compete for your business if you are transferring more than $5K – like my buddy with the inheritance would have) of the exchange services. You can choose to do this via phone, email, or the app.

3) If you consent to a quote that you’ve received, then this rate is “locked in” and you can complete the transaction any time in the next couple of days.

4) The deal is completed once you fund the account via a domestic wire transfer (usually free from your financial institution) or using a debit card (for smaller transfers).

Which Company Do I Choose?

I’m definitely not an expert on the finer points of currency conversion companies and how they compare – however “I got a guy that does that”.

MoneyTransferComparison.com is not just a basic widget that spits out currency conversion rates at you. If you take a look through their site you will see detailed reviews on the world’s leading currency converting companies. These in-depth reviews obviously highlight the ever-changing rates that are available, but they also compare any applicable fees, ease of use in an online or app setting, customer service, and overall reputation. My personal favorite feature of MTC, as a skeptical personal finance geek who is instantly suspicious of the international financial world, is the tracking of which regulators are responsible for each of the companies. This gave me some idea as to just how much an individual like myself (who doesn’t know much about international finance) could trust the company behind the service. The writers behind MTC have personally visited each of their top recommendations so that they have the highest levels of confidence in who they give the top spots to.

Never walk into a bank cluelessly to exchange Canadian Dollar for a foreign currency again! Instead, take a few minutes to check out your currency conversion options at MoneyTransferComparison, and keep more Euros, Yen, Rand, and Francs in your pocket. Instead of paying for a banker's new yacht, buy another round of the local lager or a bottle of an exotic foreign wine vintage.

Kyle is a high school humanities teacher by day, and freelance personal finance author by night. He has been published in academic journals, and has also co-authored the book "More Money for Beer and Textbooks". In his free time Kyle likes to limp up and down a basketball court and pretend to be a tough guy in a boxing ring.

9 Comments

By using this type of service I need to have an account in the foreign currency in order to “receive” the money. Is that right? (sorry — I’m clueless about this stuff)

Danielon January 29, 2017 at 3:16 pm

Your post on foreign exchange is very interesting. Besides the forex transfers, if you are travelling to foreign destinations, buying currency at banks is really very expensive. There are several local foreign exchange stores, that sell any kind of currency at considerable lower rates than bank do. Check them out before buying any foreign currency.
Furthermore, most of the Canadian VISA and Mastercard Credit Cards convert your expenses at the posted rate by VISA and/or Mastercard, and on top charge you a 2.5% administrative fee, which you don’t see on your statement, as this % is blended into the foreign exchange conversion to CDN. To avoid this 2.5%, which can add up to a considerable amount of money when you travel, you can sign up with several VISA or Mastercard that don’t charge this administrative fee, and only apply the VISA or Mastercard exchange rate. I personally have a Mariott VISA, because I collect Marriott points and it has several perks, but you have an annual fee. There is an Amazon VISA, where you collect Amazon points, and doesn’t charge the 2.5%, and also doesn’t have any annual fees. There are several other ones that avoid this fee, just make your research to find the most suitable for you. in Canada, most of the card issued by Chase don’t charge any administrative fee on foreign currency conversion. Hope this helps.

This would make the most sense to me Elizabeth, but that isn’t hard to set up at all.

Brandonon January 30, 2017 at 3:52 am

As a Snowbird, I transfer money monthly from my Canadian bank account to my US bank account. At least where TD US is concerned, unless you are transferrring from a Canadian TD account a wire transfer will automatically a trigger a US$15 fee, which I am told is mandated by the Federal Reserve.

The only way to avoid this fee to is to use an ACH/EFT (Electronic Funds Transfer), which is done at no charge — if your transfer company offers this option.

Brandonon January 30, 2017 at 3:58 am

Regarding Elizabeth’s question, I was interested in your response that it was “easy” to set up a foreign currency account. This is misleading. A Canadian can arrange for one in Canada, but if you try to set one up in the US you will need a US address. Laws about money laundering have changed all the rules about transferring money abroad.

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